Low Supplies May Spike 2004 Heating Prices

Published 8:00 pm, Monday, June 9, 2003

Associated Press Writer

An acute shortage of natural gas is causing a growing concern that consumers may see heating prices soar next winter and that higher energy costs could thwart economic recovery.

The emerging gas supply problems prompted a warning from Federal Reserve Chairman Alan Greenspan recently that not enough attention was being paid to the issue which, he said, already was putting pressure on some key industries trying to bounce back from the anemic economy.

Greenspan was to expand on his concerns at a congressional hearing Tuesday where the Energy Department, natural gas industry representatives and energy analysts also were to testify.

"It's already impacted us," Greg Lebedev, president of the American Chemistry Council said in an interview Monday. "And with the domino effect when you have an industry our size, it will by definition have a cascading effect on the entire economy."

The Energy Department says natural gas prices are expected to stay close to $6 per 1,000 cubic feet, double the average price last year, for the rest of the year and could spike higher if there is unexpected demand from power plants this summer because of hot weather.

"With natural gas prices expected to skyrocket … and demand beginning to outpace supply, it is critical that we better understand how this will impact our nation's economy," said Rep. Billy Tauzin, R-La., chairman of the Energy and Commerce Committee, for Tuesday's hearing.

The Bush administration also is worried.

Energy Secretary Spencer Abraham has asked the National Petroleum Council to provide a game plan before the end of this month on how to deal with "the looming challenges we face" because of the short-term natural gas supply crunch.

This spring, natural gas in storage dropped to 623 billion cubic feet, the lowest it has been since the government began keeping records in 1976. Stocks have increased somewhat, but remain 38 percent below last year, and 28 percent below the five-year average, according to the department's Energy Information Administration.

By next fall, the government would like to see about 3.5 trillion cubic feet of gas in storage, ready for the winter heating season, or about three times the amount available now. The average natural-gas fueled home uses about 80 thousand cubic feet a year, according to the American Gas Association.

"The natural gas industry is at a critical crossroads," says Carl English, president of Consumers Energy in Jackson, Mich. He said while the federal government encourages increased use of natural gas to improve air quality and other reasons, it also makes it difficult to get it to meet the increased demand.

Industry representatives, including English, were planning to reiterate to Tauzin's committee the need to ease permitting requirements and open more federal land to gas development, and support construction of a pipeline to bring gas down from Alaska' North Slope, where it is abundant.

But none of that will address the short term concerns.

A group of 29 Democratic senators recently wrote Abraham urging him to take steps to promote increased conservation to try to curtail gas demand this summer. Abraham agreed to push for conservation measures.

There will be enough gas to go around, but "we're trying to prepare customers for higher prices this winter regardless of the weather," says Peggy Laramie, a spokeswoman for the American Gas Association. The group represents 191 utilities that deliver natural gas to more than 53 million homes.

The spot price on Monday for natural gas was $6.25 per 1,000 cubic feet at the Henry Hub transit center in Louisiana. The average price was about $3 per 1,000 cubic feet last year, and $2.46 per 1,000 cubic feet from 1996-2000, according to the Energy Department.

Despite the high prices, there is little sign that the amount of gas being developed will increase significantly this year with the government expecting an overall 2 percent decline in production compared with last year. The number of drilling rigs has increased about 22 percent from a year ago, but remains below the number in operation in 2001 when surging prices caught the industry's attention.

The brief price jump in 2001, followed by a decline last year _ partly because of the turmoil in the electricity markets and fallout over the Enron Corp. collapse _ made producers gun-shy about committing large amounts of capital for new gas development.